Series of Sham Lawsuits Standard Keeps Unions In Lawsuit by Developer

SAMPLE: Plaintiffs, Waugh Chapel South LLC, WCS LLC, WCS Properties Business Trust (jointly “WCS”), developers of commercial real estate, filed suit against the United Food and Commercial Workers Union Locals 27 and 400 (“Unions”) and the Mid-Atlantic Retail Food Industry Joint Labor Management Fund (“Fund”) alleging that the Defendants had worked in concert to file fourteen (14) frivolous lawsuits for the sole purpose of forcing Plaintiffs to terminate their relationship with a non-unionized supermarket – conduct that WCS claimed was an illicit “secondary boycott” prohibited under 29 U.S.C. § 158(b)(4)(ii)(B). The Defendants filed a motion to dismiss on the grounds that the Fund was not a Labor Organization governed by 29 U.S.C. § 158, and that the prior lawsuits were not objectively baseless. The Motion to Dismiss was granted, and Plaintiffs appealed.

During the course of constructing two (2) separate shopping developments in which WCS planned to lease space to Wegmans Food Markets, a non-union retail food store, the Unions participated in or directed a series of actions to force WCS to terminate its relationship with the food store. The Union opposition included fourteen (14) separate legal challenges on varying grounds. Of the fourteen (14) lawsuits, only one was considered successful and ten (10) were withdrawn before responses to subpoenas for litigation funding records were provided.

The Fourth Circuit first noted that the Motion to Dismiss should have been converted to a Motion for Summary Judgment, and treated it as such for the purpose of the appeal. The Court also held that the Fund was not a Labor Organization as defined by 29 U.S.C. § 158, et. seq. and was therefore not subject to the statutes. The Court then addressed the series of lawsuits filed by or at the direction of, the Unions, and stated: “We have not had occasion to confront this issue, as our precedent has applied [Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus. (“PREI”), 508 U.S. 49, 56 (1993)] only where a party has alleged a single sham proceeding. Nevertheless, we agree with the distinction adopted by our sister circuits. […] Accordingly, when purported sham litigation encompasses a series of legal proceedings rather than a singular legal action, we conclude the sham litigation standard of [California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 92 S. Ct. 609, 30 L. Ed. 2d 642 (1972)] should govern. In this context, the focus is not on any single case. Rather a district court should conduct a holistic evaluation of whether ‘the administrative and judicial processes have been abused.’”

The Court applied the newly adopted standard, noting that there were objectively justifiable grounds for some of the legal challenges, but “the fact that there may be moments of merit within a series of lawsuits is not inconsistent with a campaign of sham litigation, for ‘even a broken clock is right twice a day.’” The Court held “that there remains a genuine issue of material fact as to whether the pattern of litigation alleged in WCS’s complaint derived from ‘a policy of starting legal proceedings without regard to the merits and for the purpose of’ waging a secondary boycott.” The Court affirmed the dismissal of the Fund, vacated the dismissal of the Unions, and remanded the action to the United States District Court for the District of Maryland.